This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
With the new legislation surrounding buy-to-let mortgages, it comes as no surprise that the market seems to be diminishing. In 2017, total lending decreased by 14% on the year before, to £35 billion, with experts predicting another drop this year.
Even though overall lending is down, buy-to-let properties are still a profitable venture since the rental market is at an all-time high and mortgage rates are extremely competitive. Brokers specialising in buy-to-let mortgages are even creating products catered to landlords with complicated lending situations.
Borrowers can take advantage of these new products by expanding their portfolios. But it can be a complicated and drawn out undertaking.
The application process for buy-to-let mortgages has become tougher because of the regulations instituted in response to the European Union’s Mortgage Credit Directive, which seeks to control the buy-to-let market for the first time. Along with a rigorous application process, these types of loans require a hefty deposit – 25% minimum, but up to 40% or more is not unheard of.
However, rates for buy-to-let mortgages are reasonable and will vary. If you are prepared and qualified, a buy-to-let business can be incredibly lucrative.
Buy-to-let mortgage application process
The new application process will differentiate between consumer landlords (those who may find themselves “accidental landlords” after inheriting a property or renting a home they previously lived in) and professional landlords (those that manage properties as their full time job). It will impose strict conditions which indicates the increased uncertainty involved with buy-to-let loans.
There’s also a list of eligibility criteria that borrowers must meet. These qualifications include a borrower’s minimum age (usually 25) and a minimum income (approx. £25,000). The number of buy-to-let loans you can take out is three, and your lender will also limit the total amount you can borrow. Additionally, borrowers will need to prove they can afford the loan.
Lenders will look at the yearly rental income the property can expect to take in and will stipulate that this income must be at least 125% of the annual mortgage interest payments to cover any unexpected tenant vacancies.
Next steps
Rather than doing all the research yourself, you can work with a broker who can make the application process, which has become increasingly complicated, easier.
Brokers have cultivated relationships with lenders that specialise in buy-to-let mortgages and developed an understanding of each lender’s specific lending criteria. Working with a broker will provide a greater chance of securing a buy-to-let loan
Need a buy to let mortgage?
Ensure you have the right mortgage for your circumstances. Chris can help find the most competitive rate of interest for you whilst ensuring you are keeping within the new regulations.
Tel: 01403 780 770
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